Farm profitability for 2021 is varied, depending on weather, location

Farm profitability in 2021 depends on location and severity of drought. The other big factor in farm profitability in 2021 was where farmers were positioned in the volatile grain markets during the year.
 
2021 crop yields
Mother Nature was not kind to many producers in North and South Dakota, as well as in portions of western Minnesota and in some other areas of the Upper Midwest, as they experienced the worst drought since 2012, and in some cases the worst drought since 1988. The drought in these areas resulted in corn and soybean yields that were 20-30 percent or more below APH yields.
The drought also resulted in very low hay and pasture production, which led to many cow/calf producers in the region being forced to liquidate a portion of their beef herd. Late in the growing season, large areas in southwest and west-central Minnesota were also impacted by strong windstorms that severely damaged crops, resulting in greatly reduced corn yields in some locations.
Many crop farmers in southern Minnesota and northern Iowa would categorize 2021 crop yields as “better than expected.” Following favorable planting and early season growing conditions for both corn and soybeans, weather conditions turned very hot and dry from late May through June. In many areas, it remained quite dry until mid-August, with the exception of a few timely rains in July.
Many portions of this region only received 50-75 percent of the normal growing season precipitation from May 1 through Sept. 30, and much of that came after mid-August.
However, the combination, of excellent planting conditions, no-drown-out loss, timely rainfall, and above normal growing degree units resulted in average to above average corn and soybean yields for the year in many portions of the region.
Given the very dry conditions in many areas for most of the growing season, 2021 was also a very good testament for the advancements in crop seed genetics that has occurred in the past couple of decades.
On the other hand, many growers in Illinois, Indiana, and the eastern Corn Belt, along with portions of eastern Iowa, southeast Minnesota, and southern Wisconsin had some of their best crop yields ever in 2021.
These areas benefited from all of the factors described earlier as far as early planting, no crop loss from heavy rains, and above normal growing degree units, as well as also receiving much more uniform rainfall during the growing season than in the areas that were described earlier.
The combination of excellent corn and soybean yields, together with very strong crop prices, led to some of the best profit margins ever for some crop producers in these regions.
Grain marketing decisions
As in most years, where farmers were positioned in the grain market and the grain marketing decisions that were made by farm operators will have a big impact on the profit levels for their crop enterprise in 2021.
Both corn and soybean markets have been fairly strong throughout most of 2021, due to increased demand both for domestic uses and for export markets.
 China returned to buying U.S. soybeans in a big way late in 2020, which has been a trend that has continued throughout 2021. China also became a major importer of U.S. corn, as the country increased its feed capacity for rebuilding swine herds following the devastation that resulted from African Swine Fever.
The “basis” level between Chicago Board of Trade (CBOT) prices and local corn and soybean prices has remained extremely tight, which has also enhanced grain marketing opportunities.
The local “new crop” 2021 corn price early in the year was $4 to $4.50 per bushel at many locations in the Upper Midwest.
Many farmers took advantage of that price to forward contract some of their corn for post-harvest delivery in 2021 or early 2022, since this was the best pre-planting corn pricing opportunity that had existed for several years.
From May until now, the local price for 2021 “new crop” corn in the Upper Midwest has been in a range of $5.00 to $5.50 per acre, or about $1 per bushel higher than the price earlier in the year.
Many farmers are now facing this same corn pricing dilemma for next year, as forward contract prices for the 2022 corn crop are above $5 per bushel, which is at the highest level in nearly a decade. They are wondering whether to take that price from a risk management standpoint or to “roll the dice” on prices going even higher, as occurred in 2021.
There was also a big difference in post-harvest marketing following the 2020 crop year. Many farmers had sold all or most of their 2020 corn and soybeans following harvest due to the best crop price levels that we had seen in many years.
Once the soybean price exceeded $10 per bushel and the corn price exceeded $4 per bushel late in 2020 and early in 2021, crop producers began aggressively selling their 2020 corn and soybeans at these profitable levels.
However, from late April through July of 2021, the cash prices were $14 to $16 per bushel for soybeans and $6 to $7 per bushel for corn across the Upper Midwest. By that time, many farmers had very little 2020 grain remaining to be sold.
The timing of crop sales can have a major impact on final profit levels for crop producers. If two farmers both had a final 2020 corn yield of 200 bushels per acre, the farmer that sold his corn for $4.50 per bushel grossed $900 per acre, while the farmer that had an average price of $6 per bushel grossed $1,200 per acre, which is a difference of $300 per acre. Both farmers probably netted a profit on the 2020 corn crop; however, there is a big difference in the level of profitability.
We are likely to see this wide variation in crop production profit levels again in 2021, due to both yield differences and grain marketing strategies.